Thursday, August 29, 2013

The Microsoft v. Motorola breach-of-FRAND-pledge trial, which started on Monday, is still going on in Seattle, and I'm glad when at least some documents get filed because it makes it easier to follow the trial from a distance of well over 5,000 miles.

GeekWire's Todd Bishop reported on Twitter that Now-Google executive and previously Motorola's vice president of intellectual property licensing, Kirk Dailey, said the following: "At the time, based on what I knew, I thought that what I sent was a [F]RAND offer." In a filing made this morning (the court apparently asked both parties to provide input on the admissibility of evidence relating to antitrust investigations of Motorola's conduct), Microsoft describes this as an "empty head, pure heart" defense. (Microsoft's counsel did not coin this term, which is commonly used in U.S. disputes over what constitutes good-faith or bad-faith conduct; Motorola, in its submission, omits the words "empty head".)

The parties disagree on (among other things) whether Microsoft may present evidence and elicit testimony regarding antitrust investigations of Motorola's conduct. One of Motorola's arguments is that this case is a contract lawsuit and Microsoft didn't bring antitrust claims in it, but Microsoft says these regulatory investigations are nevertheless relevant to the question of whether Motorola can really claim that it didn't know that it was doing something problematic. And there are other legal theories that I won't elaborate on because the judge will soon rule on the admissibility of such evidence and argument (or may already have done so -- no live-tweets under the #motosoft hashtag this morning), except that I do want to mention that Google says the FTC consent order enjoys protection under rules meant to protect settlement offers.

There's a third governmental investigation that would be very relevant here, but it wasn't discussed by the parties' submissions this morning: the ITC investigation of Motorola's complaint against Microsoft. There wasn't a final ruling on Motorola's SEP claims because the Google subsidiary withdrew them (not least because of pressure by the FTC) between the preliminary and final rulings. So I'm not sure this is going to come up this week at all, but to all those following the trial fom afar like I do and trying to form an opinion on whether Motorola acted in good faith, I strongly recommend taking a look at ITC Administrative Law Judge David Shaw's findings. After a protracted investigation and a full evidentiary hearing (the ITC equivalent of a trial in district court), Judge Shaw found that "Motorola was not interested in good faith negotiations and in extending a [F]RAND license" to Microsoft. So much for good faith and the allegedly pure heart...

Here are some of the key findings in Judge Shaw's preliminary ruling regarding Motorola's behavior:

"The offers made to Microsoft show that although Motorola assured the [standard-setting organizations] and the public that it would provide reasonable and non-discriminatory licenses for the patents essential to certain standards, those communications were misleading."

"[...] Motorola's statements and conduct toward Microsoft, and also toward [REDACTED/presumably including Apple], show that Motorola's statements to the SSOs were misleading."

"The evidence shows that the royalty rate offered by Motorola of 2.25%, both as to its amount and the products covered, could not possibly have been accepted by Microsoft."

"Indeed, there is no evidence that any company would agree to the offer that Motorola sent to Microsoft."

"[...] the evidence supports Microsoft's conclusion that Motorola was not interested in good faith negotiations and in extending a [F]RAND license to it."

Kirk Dailey is an intellectual property professional. It stretches credulity that he had no idea of the unacceptability of his demand letters when an ITC judge found that no reasonable company in Microsoft's shoes could have acceded to them. After acquiring Motorola, Google (the parent company) hired him. Google is very smart and sophisticated. It wouldn't hire someone with an empty head.

It's also important to consider here that Judge Shaw is not at all biased against patent holders like Motorola. His findings were based on the specific outrageousness of Motorola's demands, based on which he couldn't help but conclude that Motorola didn't mean to invite Microsoft to negotiate but was just looking for an excuse to seek product bans. In another case involving standard-essential patents (the investigation of InterDigital's mid-2011 complaint against Nokia, Huawei and ZTE), Judge Shaw sided with the patent holder. In other words, a so-called "patent troll" seemed more reasonable to him than Motorola.

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About Me

Florian Mueller is an app developer who used to be an award-winning intellectual property activist. His 30 years of software industry expertise span different market segments (games, education, productivity and infrastructure software), diverse business models, and technical and commercial areas of responsibility. In recent years, Florian advised a diversity of clients on the patent wars surrounding mobile devices, and on their economic and technical implications. (In order to avoid conflicts of interest, Florian does not hold or initiate transactions in any technology stocks or derivatives thereof, except that he is long AAPL.) He is now developing games for smartphones and tablet computers.